Japan Core Inflation Surpasses BOJ 2% Target for First Time in Nine Months, Cementing December Rate Hike Bets

Japan's core consumer price index rose 2.1% year-on-year in September, matching forecasts but marking the first time the measure has exceeded the Bank of Japan's 2% target in nine months and its highest reading since December 2023. Overall CPI also climbed to 2.1% from 1.9% in August, the first time it has crossed 2% since December 2025, while core-core CPI, which strips out both fresh food and energy, accelerated to 2.4% from 1.9%, its first print above 2% since March.

The breadth of the move matters as much as the headline number. Wholesale prices rose 6.8% in September, Tokyo's measure excluding fresh food and fuel had already reached 3.0%, and analysts attributed the pressure to rising fuel costs, a weak yen, and strong artificial intelligence-driven demand. The BOJ is widely expected to hold rates at its October 29-30 meeting, but the data has cemented market expectations for a hike in December, when the Federal Reserve is also anticipated to act. Japan's government debt exceeds 200% of GDP, meaning each rate increase raises the cost of carrying that debt and complicates the BOJ's path.

Separately, Japan's flash October manufacturing PMI slipped to 53.3 from 54.1 in September, missing an implied forecast of 54.5, though services PMI improved to 52.0 from 51.3, leaving the composite reading unchanged at 52.3. All three readings remain comfortably in expansion territory.

In the UK, retail sales fell 0.4% in September on a month-on-month basis, worse than the 0.1% decline forecast and a reversal from the 0.5% gain in August. Excluding auto fuel, sales dropped 0.7% against an expected 0.1% dip. Year-on-year, headline retail sales rose just 0.8%, well below the 1.0% forecast and sharply slower than the 2.4% pace recorded in August. Bloomberg reported consumer confidence fell to its worst level since the pandemic period.

Eurozone flash PMI data for October showed a broad but uneven softening. France's composite PMI dropped sharply to 48.4, with both manufacturing at 49.3 and services at 48.4 falling into contraction against forecasts near 50.5-50.7. Germany offered a partial offset, with manufacturing beating estimates at 54.2, though services eased to 51.7 and the composite slipped to 52.8 from 53.8. At the eurozone level, the composite PMI fell to 51.9 from 53.1, missing the 52.7 forecast, with manufacturing at 52.4 and services at 51.7 both coming in below expectations.